Accounting - Theses

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    Determinants and Consequences of Assurance Services in Labor Unions
    Yang, Xing ( 2023-09)
    In this thesis, I examine labor unions’ demand for external auditors and the consequences of auditors’ engagements. My study begins with analyzing unions’ incentives to engage auditors voluntarily. Using a large sample of US unions between 2001 and 2016, I find that unions tend to hire auditors when the parent organization has more affiliates to monitor and when major leaders are newly appointed. This indicates that the parent organization and union leaders can significantly drive unions’ demand for auditors. I also find that unions engaging auditors are larger, represent less financially sophisticated members, and file more detailed financial statements. Conversely, I find a lower likelihood of engaging auditors if union leaders have more substantial control power. Next, I explore the impacts of assurance services on union misconduct - a severe issue of the labor movement for decades. Using unique data on union misconduct, I find that unions have reduced incidence of misconduct after engaging auditors, indicating a deterrence effect of auditors on union misconduct. Cross-sectional tests reveal that the deterrence effect is weaker when union leaders are more powerful. Nevertheless, the effect is more pronounced on financial fraud, including embezzlement and misreporting, than non-financial misconduct. Further analyses suggest that assurance services improve financial reporting quality, as evidenced by fewer bookkeeping violations and reporting violations. Finally, I investigate other consequences of engaging auditors. My results suggest that assurance services have positive implications for union memberships and resource allocation. Specifically, unions with auditors have more memberships and spend more funds on representational activities that advance members’ benefits. In contrast, they spend less on administration activities that may reflect union leaders’ bureaucracy. My research sheds new light on the determinants of voluntary assurance and the value of external auditors in the context of labor organizations. Importantly, it provides evidence that assurance services can reduce misconduct, enhance the financial reporting quality of unions, and have positive implications for union memberships and resource allocation. Overall, this dissertation contributes to prior literature by demonstrating that external auditors can mitigate agency problems in unions, a matter of great interest to regulators, union stakeholders, and scholars.
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    Consolidation and Third Party Joinder in International Commercial Arbitration - Procedural Panacea or Poison?
    Lewis, Mark ( 2023)
    In recent decades, international trade and commerce has become increasingly complex. When disputes arise there will often be multiple interrelated parties, contracts and claims that are relevant to the adjudication and final resolution of a dispute. While courts in Australia and overseas have powers to consolidate cases and join third parties to litigation for reasons of efficiency and fairness - including to avoid parallel proceedings that could lead to inconsistent results - special considerations apply in the field of international commercial arbitration where primacy has traditionally been given to party autonomy, privity of contract and party consent. These cornerstone principles of international commercial arbitration continue to be tested by developments in modern international commerce – and nowhere is this more acute than in cases involving multi-contract claims and disputes where non-signatory third parties are in some way connected with or involved in the subject matter of the dispute. Many of the major institutional arbitration rules now include provisions for consolidation, joinder and intervention to address these contemporary issues. However, there remain unresolved tensions between such procedures and the principles of party autonomy and consent that underpin international arbitration as a contractual and voluntary process. Thorny practical issues can also arise where tribunals, institutions and courts exercise their discretion to order consolidation or joinder in arbitration, as this will invariably involve procedural compromises that affect the rights of one or more parties. This extends to the appointment of the arbitral tribunal and other adaptations to accommodate new parties or claims once arbitral proceedings have commenced. This article explores some of these issues with a particular focus on Australia’s international commercial arbitration regime. Part 1 examines the rationales for and against consolidation and joinder in international arbitration, and general consent-based principles and other legal theories that have been applied by courts and tribunals to give effect to these procedures. Part 2 analyses how these issues are dealt with in the International Arbitration Act 1974 (Cth) (IAA) and the Australian Centre for International Commercial Arbitration institutional rules; and provides a comparative analysis with a sample of overseas national laws, judicial approaches and major institutional arbitration rules. The paper concludes by revisiting traditional approaches to consolidation and third-party joinder in international commercial arbitration, and offers some suggestions for reforms to Australia’s international arbitration regime to ensure that it continues to serve its underlying purposes while also meeting the modern demands of international commerce. Two proposals for reforms to the IAA are considered: (1) an “opt out” consolidation provision; and (2) an “opt out” third-party joinder provision – which would empower both tribunals and courts to make orders with respect to consolidation, joinder and intervention in certain circumstances.
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    Mitigation of urban floods through the permeabilization of Melbourne’s large surfaces: The effects of green infrastructure on urban flooding under different scenarios in the Elizabeth Street catchment.
    Tobon Maya, Matilde ( 2022)
    Water-sensitive urban design (WSUD) is an alternative to traditional drainage to better manage stormwater in highly urbanised areas, especially in the context of climate change. Often referred to as nature-based solutions, they help reduce runoff volumes through surfaces that mimic the hydrological process of retention and filtration. Although multiple types of WSUD exist, this research mainly shows the potential benefit of implementing green roofs and permeable pavements to minimise urban flood risk, as they are easily installed on unused surfaces such as rooftops and streetcar parks. Therefore, this thesis aims to explore the relationship between green roofs and permeable pavements for flood reduction using as a case study the Elizabeth Street catchment (ESC) in Melbourne, which is the most flood-prone area in the city. The impact of these systems during flooding was studied using Geographic Information Systems (GIS) and rainfall-runoff simulations using IBER software to compare the flows and depths produced by a design storm under different modelling scenarios where the number of green roofs and porous pavements over the catchment surface were varied. At the same time, water management policies implemented in the study area were analysed to determine whether they promote the installation of green roofs and permeable pavements. The research found that implementing green roofs and permeable pavements at the urban scale depends on the level of integration in public policies. The results showed that there are 672,284 m2 of potential roofs and 98,517 m2 of on-street parking spaces in the ESC that can be intervened to help reduce the runoff volume following a rainfall event. The results showed that these strategies could help reduce runoff volume by 20%. On the other hand, it was found that the City of Melbourne's policies related to water management do not greatly promote the implementation of green roofs and permeable pavements, which is reflected in the limited number of these strategies encouraged in relevant policies.
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    Trajectories of stream evolution in response to catchment urbanisation: Cardinia Creek case study
    Elizalde, Paulina ( 2022)
    Catchment urbanisation, via the increase of impervious surfaces and efficient drainage, triggers changes in stream channel morphology and function, commonly through channel enlargement and simplification. Disturbed streams pose significant environmental, social and economic impacts in cities and suburban areas, threatening riparian habitat, urban infrastructure and the removal of large areas of arable land. Although this enlargement trajectory is well-known, it is also highly dependent on local context factors, such as geology, topography, vegetation cover, sediment concentrations and legacies of past management. Consequently, understanding the complex relationship between hydrological drivers and local context factors in channel type formation is crucial. Taking Cardinia Creek as a case study within the urban growth belt of the Greater Melbourne Area, this research seeks to study the creek’s geomorphological evolution to analyse its response and sensitivity to urbanisation. Metrics of channel form, such as bankfull width, depth, slope, and cross-sectional shape, were quantified remotely through the use of LiDAR 2017 images and subsequently surveyed in the field following the rural-to-urban gradient of the creek. Similarly, urbanisation and local context predictor variables, including attenuated imperviousness, hardpoints, riparian vegetation cover, sediment stores, and valley confinement, were assessed to understand to what extent they could explain channel responses. Results were then analysed at the reach, site and cross-sectional level to develop a channel evolution model that describes the geomorphologic adjustments of the creek to urban perturbations. Main findings show that the central urbanised reach of the waterway has a deeper, wider and simplified channel in comparison to the upstream and downstream reaches. Additionally, a high variability of responses was found within and amongst less urbanised sites, suggesting local disturbances and context factors play an important role in local channel type formation. Thus, the channel evolution response to urbanisation does not entirely follow the fundamental sequence of enlargement by incision and subsequent widening, as the creek seems to be widening with limited incision. This finding highlights the importance of understanding local-scale context factors and legacies of past management to guide future stream management or restoration efforts.
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    Essays on the intermediation of investors
    Kavourakis, James Peter ( 2020)
    Institutions that intermediate between investors and companies are crucial to the proper functioning of capital markets. These institutions provide marketplaces for and facilitate the transaction activity of investors, gather and disseminate information, and record the property rights of securities holders. The effectiveness of these institutions should be valuable to economies as they allow investors to effectively exercise and maximize the rights of ownership (La Porta et al., 2002; Claessens and Laeven, 2003; Hail and Leuz, 2006; Dixit, 2009). This thesis contains two essays that examine the value of different institutions involved in such intermediation. In the first essay, I examine the effect of securities transfer agents. Transfer agents are used to intermediate between the company and company-registered shareholders. Their primary responsibility is the proper maintenance of shareholder records, and the administration of shareholder transactions. Recent compliance failures by transfer agents, including reported acts of malfeasance by transfer agent staff, have increased regulatory scrutiny of the industry. Follow these events, the Securities and Exchange Commission (“SEC”) has released draft updates to the existing transfer agent regulatory requirements designed to improve the quality of transfer agent services and prevent further failures. Given concerns regarding the effect of this regulation on the costs of operating securities transfer agencies and competition, I examine two questions relevant to the regulatory discussion: Do transfer agents differ in quality? And, do these quality differences matter to investors? In the second essay, I examine the effect of the minimum price requirements (“MPRs”) of the NASDAQ and New York Stock Exchange (“NYSE”). MPRs permit exchanges to delist firms with stock prices persistently below $1.00. Proponents of MPRs argue they allow exchanges to maintain the quality of listed companies. Critics of the requirements argue they lack fundamental basis, limit access to capital, and harm investors. The merits of MPRs are likely rooted in the quality of firms subject to MPRs, the response of firm managers to (potential) breaches of MPRs, and the steps taken in the event of forced delisting. In this essay, I focus on the actions of firms in response to noncompliance with MPRs and examine whether these noncompliant firms respond by increasing news flow to the market.
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    The Impact of Increased Credit Rating Quality on Rated Firms
    Fatullayev, Sabutay ( 2020)
    Following the subprime mortgage crisis of 2007-2008, credit rating agencies (CRAs) faced scathing criticisms from the media and regulators for their role in the unfolding of the Global Financial Crisis (FC). The ensuing reputational damage and the changes to the regulation of CRAs led them to make numerous changes to their rating standards. Several prior studies have since examined the impact of these changes on rating quality, documenting tighter rating standards, lower ratings, and a change in rating quality after the FC. Despite these findings, however, little is understood about how a change in rating quality affects rated firms, and how firms respond to such a change. Using the tightening of rating standards in the wake of the FC as the main setting, this thesis seeks to explore these questions. Given the private lenders’ frequent use of ratings in performance pricing provisions and setting interest rates, the first study explores the changes in two dimensions of debt contracting: the use of rating-based performance pricing provisions, also called rating triggers, and loan spreads. Results suggest that the decline in the use of rating triggers in the post-FC period as documented in deHaan (2017) is muted in cases where the increase in rating quality was likely to be high, and is stronger in loans originated by lenders that had high reputational concerns. Closer inspection of pricing grids reveals that, consistent with lenders perceiving ratings to be more informative after the FC, rating downgrades/upgrades move loan spreads to a greater extent in the post-FC period. Evidence from tests on initial loan spreads provides support to this finding, but is generally weaker. These findings contribute to our understanding of how an increase in rating quality affects rated firms through its impact on debt contracting. That higher rating quality is associated with more likely downgrades suggests that firms have incentives to respond to an increase in rating quality due to the importance of ratings for firms’ debt policy. Accordingly, in light of the theoretical guidance and related empirical evidence, the second study examines whether rated firms increase misreporting in response to an increase in rating quality. In empirical tests, I find that accrual-based earnings management increased in rated firms in the post-FC period, and that this increase was driven by firms with rating triggers. In tests motivated by the CRAs’ adjustments to firms’ earnings, I also find that firms facing stronger CRA monitoring managed financial numbers that feed into these adjustments to a greater extent in the post-FC period. Considering the information used by CRAs in the rating process comes primarily from financial statements, this study informs regulators regarding the unintended consequences of regulatory reforms that aim to improve overall rating quality. The final study continues exploring other dimensions of firms’ responses to increased rating quality with an emphasis on real firm decisions. Results from tests examining real earnings management proxies indicate no change in the post-FC period for any of the numerous proxies examined. In tests motivated by the S&P’s rating criteria, however, I find that rated firms increased their excess cash holdings to a greater extent than non-rated firms after the FC. Results suggest this effect was stronger for firms placed under negative credit watch. Taken together, these findings expand our understanding of firms’ responses to an increase in rating quality by providing evidence on the impact of increased rating quality on real firm decisions.
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    Designing Incentives to Elicit Creativity
    Ranasinghe, Ajanee Bhagya ( 2020)
    In this thesis, I investigate the effectiveness of incentives for creative tasks. While organizations value and pursue creativity, they must also promote the efficient use of limited resources. Prior research finds that incentives, despite being a key control mechanism, are ineffective for simultaneously encouraging both creativity and efficiency. However, this relatively recent literature has not yet examined how critical attributes relating to individuals, tasks, and incentives may influence incentive efficacy. I conduct two studies to examine the differential effects of combined creativity and quantity incentives for (1) individuals with different creative capacities, (2) distinct types of creative tasks, and (3) varying strengths of incentives. In the first study, I focus on individual creative capacity, which is a crucial, yet unexplored characteristic of individuals engaged in creative tasks. Using an experiment, I hypothesize and find that combined creativity and quantity incentives lead to sustained high creative performance for individuals with high creative capacity. Thus, contrary to prior beliefs that combined creativity and quantity incentives are ineffective, I show that they can be effective for the type of individuals typically employed for creative work. In the second study, I examine creative tasks with pre-specified problems, which is a prevalent task type that is under-studied in the prior literature. Contrary to expectations, my experiment results show that combined creativity and quantity incentives can be detrimental to creative tasks with pre-specified problems. Comparing my study with prior studies on pre-specified problems, I note that incentive efficacy appears to be sensitive to incentive strength. Therefore, I design a follow-up experiment to examine the effect of different incentive strengths on the performance in a pre-specified task. I find that, for pre-specified tasks, combined creativity and quantity incentives are detrimental to performance, regardless of incentive strength, although the effect is predictably lower with weak incentives. This shows that combined creativity and quantity incentives are not just ineffective, as found in the prior literature, but can impede creative performance in tasks with pre-specified problems. Furthermore, weaker incentives may alleviate some of the negative effects of incentives on performance. Overall, my thesis highlights the importance of having a more granular understanding of incentive design in the creativity sphere. It extends prior research by demonstrating that incentives can lead to higher or lower creative performance depending on characteristics of individuals, tasks, and incentives. This highlights the importance of future studies on the use of performance management and rewards to elicit creative performance.
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    Strategic Financial Reporting of Target Firms in Mergers and Acquisitions
    Zhai, Kerui ( 2020)
    This thesis investigates the strategic financial reporting of target firms in mergers and acquisitions (M&As). Specifically, this thesis finds that M&A target firms manage GAAP earnings and non-GAAP earnings during selected periods of the M&A process to portray improved performance with related share price effects and M&A consequences. This thesis sheds light on how target firms, as key players in M&As, communicate with outsiders with implications for market participants, regulation, and research that heretofore has focused largely on M&A acquirers.
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    Essays on the influence of accounting regulation on non-GAAP reporting
    Desai, Hrishikesh ( 2020)
    The regulatory landscape for non-GAAP reporting has been evolving due to changes in the U.S. SEC’s interpretations of regulations affecting non-GAAP disclosures. My dissertation, which is structured around the following essays, focusses on the influence of these changes in the regulatory landscape on specific aspects of non-GAAP disclosures. In the first essay, I examine how a 2010 change in the regulatory landscape for non-GAAP reporting affects the use of non-GAAP measures used for executive compensation contracting. In the second essay, I examine how a 2016 change in the regulatory landscape affects how managers make non-GAAP exclusion decisions. The results from this research provide evidence to regulators of the intended and unintended consequences of their rulemaking. Essay 1: I examine whether the regulation of non-GAAP disclosures constrains efficient compensation contracting. I use the regulatory shock of the January 2010 update by the U.S. SEC to its interpretive guidance on non-GAAP disclosures, which some believe relaxed the bar for non-GAAP reporting. Using a difference-in-differences estimation approach, I find that firms with strong incentives to use non-GAAP measures in CEO incentive plans started using more of these measures after the guidance update to those that did not. I also find that this increase was more pronounced among firms with a higher propensity to fail a non-GAAP regulatory test in fiscal years 2010-11, which was relaxed after the update. Based on the history of regulations affecting the use of non GAAP performance metrics and their specific applicability to non-GAAP measures used for contracting and valuation, I conclude that these effects are largely an unintended consequence of SEC rulemaking. Essay 2: I examine how managers make non-GAAP exclusion decisions depending on the type of regulatory guidance provided and their disclosure motivations. I use the U.S. SEC’s May 2016 interpretive guidance update, in which it provided specific examples of types of non-GAAP disclosures that could be misleading, to vary the level of detail in the guidance. Results of a 2 x 2 between-subjects experiment on 132 managers having an accounting/finance background provide strong evidence that managers choose to exclude an ambiguous charge in constructing a non-GAAP measure when provided with a more detailed type of guidance relative to a broader one since it lowers their decision uncertainty. I also find some evidence that managers choose to exclude the ambiguous charge when given an informativeness goal by top management as compared to an opportunism goal since the informativeness goal triggers their epistemic motivation. One of my key results is that these inferences hold only at low levels of process accountability. Finally, I also find that managers with a goal of informativeness make more ‘normative’ exclusion decisions when given a more detailed guidance as opposed to a broader one. I do not find similar or contrary evidence for managers with a goal of opportunism.